The discharge of debts in the new bankruptcy law
The debt discharge regulation applies to bankruptcies since 1 May 2018. Previously, it referred to the bankrupt's excusability.
The aim of the legislator, with regard to the remission system, was to give the bankrupt natural person a second new chance. In addition, the corporate court can now decide on it faster than what was previously the case with excusability. The discharge system is intended to be automatic.
Discharge is automatic subject to opposition
In principle, the discharge will be granted automatically by the court at the closure of the bankruptcy unless there is opposition from any ‘interested party’.
Previously, an application had to be filed by the bankrupt natural person to obtain this remission. This has not been the case since September 2023. Thus, even without an application for discharge, the court must automatically grant the discharge at the closure of the bankruptcy.
The court cannot refuse the discharge on its own initiative. Only the interested parties can prevent the discharge by opposing it. Interested parties are defined as creditors, the trustee or the public prosecutor. These interested parties will then have to prove that the bankrupt ‘committed manifestly gross errors that contributed to the bankruptcy’.
The interested parties can oppose the discharge from the bankruptcy judgment. Is there already a court judgment granting the waiver? Then these interested parties may still be able to file third-party opposition up to three months after the announcement of the bankruptcy closure.
Manifestly gross errors that contributed to bankruptcy
To prevent discharge, interested parties must show that the bankrupt committed ‘manifestly gross errors that contributed to the bankruptcy’.
There are already numerous examples in case law of such gross errors that contributed to the bankruptcy. This burden of proof is identical to the burden of proof in a claim for discharge of liabilities that can be brought against company directors. These are errors that everyone, without any discussion, considers to be gross misconduct, an ‘inexcusable levity or carelessness’ that almost amounts to fraud or deliberate misconduct.
Some examples:
- Continuing a severely deficit business to the detriment of creditors;
- Misappropriating goods or funds;
- Failure to keep accounts;
- Systematically failing to pay tax and social security contributions as a deliberate way of financing the business.
The fault does not necessarily have to be the root cause. It is sufficient that the mistake contributed to the bankruptcy.
If the court finds that the opposition is well-founded, it will refuse the discharge in whole or in part. Partial refusal is likely to mean that only part of the discharge will be granted to all creditors. The discharge may also be refused only in respect of one or more specific creditors.
Which debts are eligible for discharge?
The discharge applies to all debts of the bankrupt that existed at the time of the declaration of bankruptcy. This includes both company debts and private debts of the bankrupt. Debts arising during the bankruptcy proceedings (estate debts), or arising from a new professional activity of the bankrupt, are excluded from the discharge.
In addition, the following debts are exceptionally not discharged:
- Maintenance debts;
- Compensation due for death or impairment of physical integrity caused by the bankrupt;
- Criminal fines.